Question 1

If the Fed acts to decrease the money supply,

Accepted Answer

A)  it will increase the supply of bonds, drive bond prices up, and drive interest rates down. 
B)  it will increase the demand for bonds, drive bond prices down, and drive interest rates down. 
C)  it will increase the supply of bonds, drive bond prices down, and drive interest rates up. 
D)  it will increase the demand for bonds, drive bond prices up, and drive interest rates down. 
A)  it will increase the supply of bonds, drive bond prices up, and drive interest rates down. 
B)  it will increase the demand for bonds, drive bond prices down, and drive interest rates down. 
C)  it will increase the supply of bonds, drive bond prices down, and drive interest rates up. 
D)  it will increase the demand for bonds, drive bond prices up, and drive interest rates down.

Question 2

Use the following to answer questions .
Exhibit: The Bond Market  
-(Exhibit: The Bond Market) A movement from S1 to S2, means there was

Accepted Answer

A)  a decrease in borrowing. 
B)  an increase in borrowing. 
C)  a decrease in lending. 
D)  a decrease in the interest rate. 
A)  a decrease in borrowing. 
B)  an increase in borrowing. 
C)  a decrease in lending. 
D)  a decrease in the interest rate.

Question 3

Which of the following increases the demand for money?

Accepted Answer

A)  an increase in the costs of transferring between money and non-money accounts 
B)  a decrease in real GDP 
C)  a decrease in the price level 
D)  declining preferences by consumers for holding money 
A)  an increase in the costs of transferring between money and non-money accounts 
B)  a decrease in real GDP 
C)  a decrease in the price level 
D)  declining preferences by consumers for holding money

Question 4

Use the following to answer questions .
Exhibit: Economic Adjustments  
-(Exhibit: Economic Adjustments) Long-run equilibrium positions occur at points

Accepted Answer

A)  a and d. 
B)  a and b. 
C)  c and d. 
D)  b and d. 
A)  a and d. 
B)  a and b. 
C)  c and d. 
D)  b and d.

Question 5

An increase in interest rates is likely to cause

Accepted Answer

A)  firms and households to increase the quantity of money demanded. 
B)  firms and households to decrease the quantity of money demanded. 
C)  the money demand curve to shift to the right. 
D)  the money demand curve to shift to the left. 
A)  firms and households to increase the quantity of money demanded. 
B)  firms and households to decrease the quantity of money demanded. 
C)  the money demand curve to shift to the right. 
D)  the money demand curve to shift to the left.

Question 6

An increase in the supply of bonds leads to

Accepted Answer

A)  an increase in the price of bonds, a decrease in the interest rate, and an increase in aggregate demand. 
B)  an increase in the price of bonds, an increase in the interest rate, and an increase in aggregate demand. 
C)  a decrease in the price of bonds, an increase in the interest rate, and an increase in aggregate demand. 
D)  a decrease in the price of bonds, an increase in the interest rate, and a decrease in aggregate demand. 
A)  an increase in the price of bonds, a decrease in the interest rate, and an increase in aggregate demand. 
B)  an increase in the price of bonds, an increase in the interest rate, and an increase in aggregate demand. 
C)  a decrease in the price of bonds, an increase in the interest rate, and an increase in aggregate demand. 
D)  a decrease in the price of bonds, an increase in the interest rate, and a decrease in aggregate demand.

Question 7

Holding everything else unchanged, higher interest rates in foreign countries relative to U.S. interest rates

Accepted Answer

A)  increase the demand and reduce the supply of dollars leading to an increase in the exchange rate. 
B)  decrease the demand and the supply of dollars leading to an decrease in the exchange rate. 
C)  increase the demand and the supply of dollars leading to an increase in the exchange rate. 
D)  decrease the demand and increase the supply of dollars leading to a decrease in the exchange rate. 
A)  increase the demand and reduce the supply of dollars leading to an increase in the exchange rate. 
B)  decrease the demand and the supply of dollars leading to an decrease in the exchange rate. 
C)  increase the demand and the supply of dollars leading to an increase in the exchange rate. 
D)  decrease the demand and increase the supply of dollars leading to a decrease in the exchange rate.

Question 8

If the quantity of money supplied does not respond to changes in the interest rate, then the money supply curve is

Accepted Answer

A)  vertical. 
B)  horizontal. 
C)  relatively flat but upward sloping. 
D)  relatively steep but upward sloping. 
A)  vertical. 
B)  horizontal. 
C)  relatively flat but upward sloping. 
D)  relatively steep but upward sloping.

Question 9

Use the following to answer questions .
Exhibit: The Bond Market  
-(Exhibit: The Bond Market) Following the increase in supply from S1 to S2, at a price of $850, what is the interest rate?

Accepted Answer

A)  6.6% 
B)  15% 
C)  17.6% 
D)  23.5% 
A)  6.6% 
B)  15% 
C)  17.6% 
D)  23.5%

Question 10

If the demand for U. S. dollars goes down, the exchange rate will .

Accepted Answer

A)  increase and, as a result, net exports in the United States will decrease. 
B)  decrease and, as a result, net exports in the United States will increase 
C)  increase and, as a result, net exports in the United States will increase 
D)  decrease and, as a result, net exports in the United States will decrease 
A)  increase and, as a result, net exports in the United States will decrease. 
B)  decrease and, as a result, net exports in the United States will increase 
C)  increase and, as a result, net exports in the United States will increase 
D)  decrease and, as a result, net exports in the United States will decrease

Question 11

Use the following to answer questions .
Exhibit: Economic Adjustments  
-(Exhibit: Economic Adjustments) If the economy is at point b,

Accepted Answer

A)  the unemployment rate is negative. 
B)  the unemployment rate is zero. 
C)  the level of employment is greater than the natural level of employment. 
D)  it is at the natural level of employment. 
A)  the unemployment rate is negative. 
B)  the unemployment rate is zero. 
C)  the level of employment is greater than the natural level of employment. 
D)  it is at the natural level of employment.

Question 12

A rise in bond prices would cause the price of a dollar to rise.

Accepted Answer

A) True 
 B)False

Question 13

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate a recessionary gap. Be sure to include in your answer a discussion of what happens to the money supply, interest rates, and the components of aggregate demand.

Accepted Answer

To eliminate a recessionary gap, the Fed

Question 14

If the Fed acts to increase the money supply,

Accepted Answer

A)  it will sell bonds, drive bond prices up, and drive interest rates down. 
B)  it will buy bonds, drive bond prices down, and drive interest rates down. 
C)  it will sell bonds, drive bond prices up, and drive interest rates up. 
D)  it will buy bonds, drive bond prices up, and drive interest rates down. 
A)  it will sell bonds, drive bond prices up, and drive interest rates down. 
B)  it will buy bonds, drive bond prices down, and drive interest rates down. 
C)  it will sell bonds, drive bond prices up, and drive interest rates up. 
D)  it will buy bonds, drive bond prices up, and drive interest rates down.

Question 15

All of the following are determinants of money demand except

Accepted Answer

A)  the cost of transferring funds from interest earning assets to checking accounts. 
B)  expectations about the future price level. 
C)  the money supply. 
D)  Real GDP. 
A)  the cost of transferring funds from interest earning assets to checking accounts. 
B)  expectations about the future price level. 
C)  the money supply. 
D)  Real GDP.

Question 16

Keeping an extra $200 in your checking account to pay for possible car repairs illustrates the

Accepted Answer

A)  speculative demand for money. 
B)  transfer demand for money. 
C)  precautionary demand for money. 
D)  transactions demand for money. 
A)  speculative demand for money. 
B)  transfer demand for money. 
C)  precautionary demand for money. 
D)  transactions demand for money.

Question 17

All other things unchanged, why does an increase in money demand cause the aggregate demand curve will shift to the left?

Accepted Answer

A)  Because the resulting increase in bond prices reduces consumption spending. 
B)  Because the resulting decrease in bond interest rate will lead to an increase in the quantity of investment and net exports. 
C)  Because the resulting higher interest rate will lead to a lower quantity of investment and net exports. 
D)  Because the resulting lower interest rate will lead to lower net exports. 
A)  Because the resulting increase in bond prices reduces consumption spending. 
B)  Because the resulting decrease in bond interest rate will lead to an increase in the quantity of investment and net exports. 
C)  Because the resulting higher interest rate will lead to a lower quantity of investment and net exports. 
D)  Because the resulting lower interest rate will lead to lower net exports.

Question 18

The opportunity cost of holding money is

Accepted Answer

A)  the liquidity foregone. 
B)  the higher interest rates that can be earned by holding a bond fund. 
C)  the decrease in risk from holding money rather than a bond fund. 
D)  the liquidity gained by holding ready cash. 
A)  the liquidity foregone. 
B)  the higher interest rates that can be earned by holding a bond fund. 
C)  the decrease in risk from holding money rather than a bond fund. 
D)  the liquidity gained by holding ready cash.

Question 19

If the money supply curve is vertical, an increase in bond interest rates

Accepted Answer

A)  is likely to cause banks to supply more money. 
B)  is likely to cause banks to supply less money. 
C)  has no effect on the money supply. 
D)  is likely to cause the Federal Reserve to increase the money supply. 
A)  is likely to cause banks to supply more money. 
B)  is likely to cause banks to supply less money. 
C)  has no effect on the money supply. 
D)  is likely to cause the Federal Reserve to increase the money supply.

Question 20

Use the following to answer questions .
Exhibit: Economic Adjustments  
-(Exhibit: Economic Adjustments) If the economy is at point c, the Federal Reserve can close the output gap

Accepted Answer

A)  by pursuing an expansionary monetary policy to raise the interest rate and increase short run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and increase short run aggregate supply. 
A)  by pursuing an expansionary monetary policy to raise the interest rate and increase short run aggregate supply. 
B)  by pursuing a contractionary monetary policy to drive down the interest rate and increase aggregate demand. 
C)  by pursuing an expansionary monetary policy to drive down the interest rate and increase aggregate demand. 
D)  by pursuing a contractionary monetary policy to raise the interest rate and increase short run aggregate supply.

If the Fed acts to decrease the money supply,

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) A movement from S₁ to S₂, means there was

Which of the following increases the demand for money?

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Long-run equilibrium positions occur at points

An increase in interest rates is likely to cause

An increase in the supply of bonds leads to

Holding everything else unchanged, higher interest rates in foreign countries relative to U.S. interest rates

If the quantity of money supplied does not respond to changes in the interest rate, then the money supply curve is

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Following the increase in supply from S₁ to S₂, at a price of $850, what is the interest rate?

If the demand for U. S. dollars goes down, the exchange rate will .

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point b,

A rise in bond prices would cause the price of a dollar to rise.

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate a recessionary gap. Be sure to include in your answer a discussion of what happens to the money supply, interest rates, and the components of aggregate demand.

If the Fed acts to increase the money supply,

All of the following are determinants of money demand except

Keeping an extra $200 in your checking account to pay for possible car repairs illustrates the

All other things unchanged, why does an increase in money demand cause the aggregate demand curve will shift to the left?

The opportunity cost of holding money is

If the money supply curve is vertical, an increase in bond interest rates

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point c, the Federal Reserve can close the output gap

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Exam 10: Financial Markets and the Economy

If the Fed acts to decrease the money supply,

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) A movement from S1 to S2, means there was

Which of the following increases the demand for money?

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) Long-run equilibrium positions occur at points

An increase in interest rates is likely to cause

An increase in the supply of bonds leads to

Holding everything else unchanged, higher interest rates in foreign countries relative to U.S. interest rates

If the quantity of money supplied does not respond to changes in the interest rate, then the money supply curve is

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Following the increase in supply from S1 to S2, at a price of $850, what is the interest rate?

If the demand for U. S. dollars goes down, the exchange rate will .

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point b,

A rise in bond prices would cause the price of a dollar to rise.

Using a money market diagram and a diagram of aggregate demand and aggregate supply, explain how the Fed can eliminate a recessionary gap. Be sure to include in your answer a discussion of what happens to the money supply, interest rates, and the components of aggregate demand.

If the Fed acts to increase the money supply,

All of the following are determinants of money demand except

Keeping an extra $200 in your checking account to pay for possible car repairs illustrates the

All other things unchanged, why does an increase in money demand cause the aggregate demand curve will shift to the left?

The opportunity cost of holding money is

If the money supply curve is vertical, an increase in bond interest rates

Use the following to answer questions . Exhibit: Economic Adjustments -(Exhibit: Economic Adjustments) If the economy is at point c, the Federal Reserve can close the output gap

Economics: the Study of Choice

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Aggregate Demand and Aggregate Supply

Economic Growth

The Nature and Creation of Money

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) A movement from S₁ to S₂, means there was

Use the following to answer questions . Exhibit: The Bond Market -(Exhibit: The Bond Market) Following the increase in supply from S₁ to S₂, at a price of $850, what is the interest rate?